Bitcoin struggles for survival in India after RBI clampdown

Though there is no aggregated data for the exchanges and trading in India, indicative data from LocalBitcoins suggests significant decline in transaction volume. Photo: Bloomberg

In April this year, the Reserve Bank of India (RBI) gave a three-month window to banks and other RBI-regulated entities to wind up existing relationships with firms or individuals dealing in cryptocurrencies. The restrictions came into effect on 7 July, in a big setback to the crypto market in India.

About a month ago, the crypto market experienced another blow, when one of the country’s oldest crypto exchange, Zebpay, announced on 27 September that it was shutting shop. Other exchanges and investors are now waiting for the Supreme Court to hear a petition, filed by some of the exchanges and the Internet and Mobile Association of India (IAMAI), which challenged the RBI’s 6 April circular prohibiting rupee-crypto trade. Though the final hearing was scheduled to be held in September, it got postponed.

Overall, the crypto industry seems to be in a shambles with trading volumes dipping at most exchanges despite the rise of peer-to-peer or P2P transactions and innovations by a few exchanges in a survival bid.

Trading volumes down

As expected, there have been slumps in trading activity around the time of RBI’s announcement and when the ban came into affect.

Older exchanges with a longer history and data of transactions have a stark story to tell. Sathvik Vishwanath, co-founder and CEO of Unocoin, the crypto exchange that started in 2013, said the present volumes are less than 10% of the volumes three months ago.

Another exchange Koinex too has witnessed significant decline in trading volume. “At the peak in December 2017, we did around $265 million in trading volume in a 24-hour period. Right now it is about $1-2 million in a day,” said Rahul Raj, co-founder and CEO, Koinex.

Though there is no aggregated data for the exchanges and trading in India, indicative data from LocalBitcoins, an international peer-to-peer or P2P trading platform, suggests significant decline in transaction volume. At LocalBitcoins alone, the crypto transaction volume in India in the week ending 16 December 2017 was ₹22.6 crore compared to ₹9.3 crore in the week ended 13 October 2018. Bitcoin prices hit the peak in December 2017.

Vishwanath said it is important to note that LocalBitcoins was used by less number of people before the RBI ban became effective. “Earlier when there were no RBI restrictions, about 10% of the trading volume used to happen through LocalBitcoins. Now with the restrictions in place, we can easily say that it would have reached about 50% of the total volumes,” he said.

However, volumes are going up on exchanges that have introduced P2P transactions. “From August, we are seeing an uptick in the number of people signing up on the platform and transacting. We saw about 9,000 sign-ups last month alone, and most of these people are the ones who have never transacted in crypto before. Usually about 40-50% of the new sign-ups complete a trade after signing up,” said Nischal Shetty, founder and CEO of WazirX, an exchange that started operations in March this year, and introduced P2P transactions in July. WazirX claims to have monthly trading volumes of ₹35 crore as on September.

Moreover, customers from Zebpay, which was among the leading exchanges, are also migrating to P2P exchanges, hence their volumes are going up.

At the aggregate level for India, though, volumes appear to have come down significantly, due to RBI restrictions.

Increase in innovations

While the volumes have clearly taken a massive hit, some exchanges are trying to keep the boat sailing.

Two exchanges, WazirX and Koinex, have come up with P2P trading. Now another exchange, Unocoin, has come up with another possible entry and exit solution for its customers. The exchange will be deploying kiosks like automated teller machines (ATMs) that will accept cash that will be reflected in the user’s rupee wallet on the exchange and can be used for purchase of cryptocurrency. Similarly, a user having a rupee balance in the crypto wallet can withdraw cash from the kiosk. According to Vishwanath, the first such kiosk will be set up in Bengaluru, and they will look at expansion depending on the response.

The exchange will only allow KYC-verified customers to use the kiosk facility. “No cards will be issued. A KYC-verified customer will be able to use his user ID and OTP to authenticate himself at the kiosk,” Vishwanath said.

But why didn’t Unocoin go for a P2P model, like others? Vishwanath said the RBI notification clearly says that not only entities but even individuals are restricted from using their bank accounts for buying and selling of crypto assets.

In a regular crypto exchange, the buyer transfers the money to the exchange, the exchange matches the transaction in the backend, and then transfers the asset to the buyer and the money to the…